One Year Later: The Effects of Hawai‘i’s Illegal Short-Term Rental Ban

Illegal vacation rentals have worsened Hawai‘i’s affordable housing shortage while contributing to an overrun of high-impact, low-spending visitors. One year after a law limiting the short-term rentals passed, we check in on its effects.

Hopes were high when a bill with real teeth passed last August; then COVID-19 hit. Now, a year after the short-term vacation rental law took effect—at a time when thousands fear eviction from their homes—quarantine breakers are complicating enforcement and global host platforms are embedding themselves in county governments.

Just think how we might all have gotten along. But for the lack of an internet connection, millions of tourists wouldn’t have descended like invading paratroopers on trailheads, pillboxes, beaches and neighborhoods—and stayed to party in residential neighborhoods. People could’ve smiled at the occasional visitor who’d found a room or a house for a week or so, because they were so rare. Aloha would’ve been the law of the land.

Things began to change in the 1980s. By 1989 O‘ahu short-term vacation rentals, or STRs, had become enough of a problem that they were made illegal, except for 800 grandfathered permittees. Enforcement was assigned to the county’s Department of Planning and Permitting, whose focus is on permitting and inspection, and was never funded (fines went into the general fund instead of for additional staff). So STRs kept spreading. But, when it came to pitching those rentals to prospective renters, at least, owners were limited to print classified ads, rental agencies and word of mouth.

A vigorous 80, Lucille can be found walking her dogs three times a day on a quiet street. She knows everyone. As she makes the rounds, she hands out home-baked treats to people, dogs and the ducks that waddle up the sidewalk to meet her.

For the past three years, Lucille has sent handwritten letters of complaint about the illegal short-term rental across from her house, where she’s lived since 1964. “Airbnb, it’s people shouting, screaming, carrying on. One group, their baby was crying one night, they put it outside to cry! They shut their doors and kept partying.” The property’s manager refused to talk to her. “Overseas owners, they don’t care.” And the city? “Nothing happens! Tour vans come here to pick people up and drop them off! The thing is, this was a very quiet neighborhood and now it isn’t.”

“It’s been a long time since citizens really pushed back on the tourism industry. Honolulu now has one of the most aggressive regulatory bills on short-term rentals in the country and that was mostly a result of citizen activism.”

— Colin Moore, UH associate professor of political science

How did it happen? The internet. Free ad listing site Craigslist begat VRBO (vacation rentals by owner) in 1995 and instant imitators. Millions of addictive you-are-here travel images put visitors a click away from paradise thanks to Facebook (founded 2004), Airbnb (2008) and Instagram (2010). Meanwhile, those who hosted now had technology that any underworld could love: It could leapfrog zoning laws; turn residential housing stock into visitor units; and bypass city, state and even federal tax collection. No wonder Airbnb revenues rocketed from an estimated $8.4 million to $52.8 million in a single year (2011).

In Hawai‘i, STRs went to work, stealthy as a tribe of termites, on the foundations of an already shaky housing market. By 2015, as reported in our story “Who Owns O‘ahu?” a scan of realproperty.com and county ownership records revealed that of “nearly 50 beachfront properties between Kalama Beach Park and Kailua Beach Park, at least 34 are wholly or partially held in trust, and another seven are LLCs.” The same pattern of shell company ownership was happening in Kāhala—and soon, as far off the beaten track as ‘Ewa Beach.

“I remember being in Wahiawā, meeting a family living on the beach,” says Kym Pine, then a state representative, now representing District 1 on the City Council and a mayoral candidate. “They didn’t look homeless. They had all their stuff in the car and a little rental trailer. They said, ‘We got suddenly kicked out by our landlords for a vacation rental.’”

City and state leadership, and the Hawai‘i Tourism Authority, didn’t ignore the rise of STRs. They celebrated it. When visitor numbers rose from 7 million tourists in 2010 to 10.4 million in 2019 after down years from 2007-09, they patted themselves and Hawai‘i on the back. Keep up the good work! People asking if all this sudden growth wasn’t too much were dismissed as anti-tourist, crunchy granola types who didn’t care about jobs—even though the HTA’s own surveys showed a growing majority of residents who felt that “this island is being run more for tourists than local people.”

“A lot of complaints were ad hoc [and] depended on who you could contact,” says Kathy Sokugawa, acting director of the DPP since 2017. But it also seemed that when residents did get through, they weren’t being heard. Lucille says she never heard back once, despite writing numerous letters describing violations.

“Some weren’t complaining. Far from it.”

STRs act as a rising tide, says a 40-year veteran real estate sales professional, who also manages properties and owns a legally permitted STR. “The owner [of an STR] runs a huge small business and serves a lot of customers and suppliers and is able to make two-thirds of his mortgage if he rents it out around two or three days per month,” he emailed, requesting anonymity.

The way he sees it, this benefits society. The STR host is “also able to stay there when it’s vacant, he’s able to put his friends and family there, and mostly he’s able to maintain the property every day as a five-star rating or guests won’t stay. AND he serves an entire small business community of local families,” those providing services such as cleaning, pool and yard maintenance, bookkeeping and supplying amenities. Restaurants, boutiques, surf and water sports providers also spring up, employing even more.

The deal he describes—make most of the mortgage by renting out the home for a weekend, bank the rest after expenses—drew investors from the Mainland with more financial savvy and access to capital than locals. “The North Shore is now mostly California people, Mainland people—not Asian people,” says a Realtor who handles sales on the North Shore and in town. “The ones who bought what you might call middle-class affordable houses”—in the $1 million to $1.4 million range—“are all from the West Coast. It’s been a cash cow for them, short-term rental.”

Why is this possible? “We have the lowest property taxes in the U.S. and, almost, in the world,” says Victor Geminiani, executive director of the Hawai‘i Appleseed Center for Law and Economic Justice from 2011 until last year. “There is no better place to park your money than Hawai‘i.” For example, local news website Civil Beat tracked down a retired Vermont schoolteacher whose financial planner put her into an STR condo here to generate cash.

“We fell in love,” says an East Honolulu 30-something with a radiant smile. “He owned his place,” a condo in Makiki, but it was too small. “We knew several people who were doing Airbnb,” so the couple did that and found a bigger place to rent for themselves, got married and lived hap—

“I got laid off super suddenly,” she says. “Airbnb literally saved our house.”

SEE ALSO: Rethinking Hawai‘i: How the Visitor Industry Should Operate in the Future

“I’ve heard people make the argument, well, STRs, they aren’t all bad,” says Colin Moore, associate professor of political science at the University of Hawai‘i at Mānoa. “They say, ‘Kailua is better for it, Hale‘iwa is better for it—nicer places, better restaurants.’ They’re not entirely wrong.”

Kailua’s Twogood Kayaks Hawai‘i is an example of the STR halo effect. “We’ve got 11 employees, part-time,” said owner Bob Twogood in February, “doing office stuff, guide stuff, rental stuff and repairing boats. We rent and sell kayaks, SUPs and offer guided water tours, instruction and retail sales of locally made items.”

However, part-time jobs don’t make rent and since the ’80s a gap has steadily grown between what residents can afford for housing and what they’re being paid. In 2015, Hawai‘i ranked last in the nation—by a wide margin—in wages vs. rental costs. The National Low-Income Housing Coalition study, Out of Reach, estimated it would take 4.1 minimum-wage jobs to hit the $31.61 minimum hourly wage needed to rent a two-bedroom unit. That year 42% of residents rented, the fourth-highest percentage in the country. Housing costs were forcing people to leave the Islands altogether.

When city leaders looked at fixes, they settled on mandating affordable units for luxury condo construction in Kaka‘ako. But these “affordable” units proved to be a drop in the bucket—mid-six-figure drops, useless in a state where the median wage was $69,542 in 2014 and the 14% of Hawai‘i full-time workers who made minimum wage, $10.10 an hour, earned $20,200 a year.

Though the state estimated 25,000 new units needed to be built on O‘ahu, 74% of them affordable, to meet demand by 2025, as of the 2017 Census American Community Survey there were actually more than 35,000 surplus units already in existence, just not in use as residential housing. How many of those units were being used as STRs no one could say, but neighbors felt the effects: longer lines, more crowded roads, strangers rolling suitcases on quiet residential sidewalks.

Among the 30,000 visitors arriving daily in 2019, so many found illegal rentals on ‘Ewa Beach Road the neighborhood character changed. Photo: James Nakamura.

The battle to get a new bill passed that would curb illegal short-term rentals was joined in 2016 by citizen groups, activist Facebook pages like Keep it Kailua, council member Pine, nonprofits like the Appleseed Center and unions anxious to preserve hotel worker jobs. At the same time, cities around the world tumbled to the STR game: Madrid, Barcelona, Venice, San Diego, San Francisco, New York City, Miami—all established limits or outright bans on STRs. Some were suing Airbnb over undisclosed revenues that hid tax evasion. There were now clear examples of how to control and reverse the situation.

Yet the years 2016, ’17 and ’18 saw O‘ahu and the Islands teetering on the brink of surrender to the hosting platforms. Airbnb struck first, offering to collect state taxes from its Hawai‘i hosts and distribute them. The amount Airbnb dangled before the Legislature was $30 million. With the Honolulu City Council divided and uncertain how to tackle the issue, and Maui and Hawai‘i counties tempted by the money, it felt like a tactic to drive acceptance and forgiveness of STRs.

“Who will get the Airbnb millions?” took on a game-show atmosphere. Senate Ways and Means chair Donovan Dela Cruz pushed hard for the payout, as did House chair Sylvia Luke. The bill passed in the Legislature but Gov. David Ige vetoed it. Said Airbnb’s Chris Lehane, head of global policy and affairs: “We would really like to put a pile of tax money there at the bottom of the Hawai‘i rainbow if we can. Most states see this as a huge thing. We are really puzzled.”

As STRs were appearing everywhere, including in Kalihi and Kaimukī, even Mayor Kirk Caldwell joined the voices for a new law, though he still trotted out apocryphal stories of Auntie renting out a spare room to pay the bills (which presumably included a raised general excise tax to pay for the overbudget rail project). In January 2018, Ige rejected another Airbnb proposal, saying: “I think we need to have transparency. We need to ensure that the properties being utilized for short-term vacation rentals are appropriately zoned and regulated.”

Airbnb, Expedia and other platforms countered with a $500,000 media and lobbying blitz that included search engine tweaks so that a search for, say, “two-bedroom apartment cost in Hawai‘i,” might return three pages of “Hawai‘i rental prices see astounding drop!” After Ige’s veto, in 2018 Airbnb next floated the possibility that there was $64 million in uncollected taxes out there—either their illegal revenues had doubled or they’d knowingly lowballed the first offer. As the City Council seesawed over what to do, the House passed the bill.

Sources: All HTA, with exceptions noted

For STR opponents, a data doorstop was needed to block the public relations and misinformation that gave lawmakers an excuse for inaction. Enter Madison DeLuca, 25, an AmeriCorps policy analyst for VISTA (Volunteers in Service to America). DeLuca says she “tried to use state-published sources as much as possible to minimize potential claims of bias.” Of her 78 citations in the eventual Appleseed report, many came from studies commissioned by the HTA. “It took her three months,” says Geminiani, “but she found all these figures that the city said they couldn’t get.”

The March 2018 Hawai‘i Appleseed Short-Term Rental Report debunked every argument in favor of STRs. Were they too hard to count and track? Well, DeLuca did it, relying “mostly on searching state and county websites to determine the number of STRs,” she says. Were they on the rise? Yes, there was a 35% increase over the previous two years. Were they profitable? Yes, bringing in 3.5 times more revenue than a long-term rental. Well, at least the 23,000 statewide STRs were mostly grandmas and grandpas renting out spare bedrooms to pay the bills, right? No. In fact, up to 93% of listings were for entire houses.

As for the economic impact, the report looked at a study of San Francisco that concluded that its economy “loses up to $300,000 [in costs and services] per vacation rental per year. The impact in Hawai‘i is likely to be similar”—especially since Hawai‘i ranks first in crowding (more than two people per bedroom) for both owner-occupied and rental houses, and in doubling up (where multiple households live in a single home).

Just as damning was the news that, although the visitor count was up 60% since 1989, visitor spending had not increased for 30 years. With vacation rentals taking up a third of O‘ahu’s vacation units—expanding from the original legal 800 units to an estimated 10,000, if not more—the blame fell squarely on STR visitors and their hosts.

The Senate voted down the Airbnb bill, SB 1292. But Ways and Means chair Dela Cruz held up 15 bills, including one granting burial rites to Filipino World War II veterans, saying, “If you want to keep bills, you need 1292.” He got his votes.

Meanwhile at the city level, Mayor Caldwell proposed a bill that he said would fix loopholes and assess penalties so high that STR operators couldn’t treat them “as the cost of doing business.” But with council members floating their own versions, chair Pine says, “I basically said I’m going to pass everyone’s ideas so everyone will vote on them.” A consensus bill emerged with Caldwell’s draconian penalties that multiplied daily for violators but without his idea to allow an unlimited number of bed-and-breakfasts; his counter-offer to allow 1% of housing units in a district to be B&Bs was also nixed. The compromise: 1,700 permits for B&Bs, to be raffled off at a future date (Oct. 1, 2020) but by July even that had been placed on hold, due to coronavirus concerns.

On June 24, Gov. Ige published his list of forthcoming vetoes, which included SB 1292. On June 25, Bill 89, regulating short-term rentals, became law as city ordinance 19-18. Ige then signed a bill that criminalized lying to an inspector. After 30 years, illegal short-term rentals had been banned. Really banned. Really really banned.

“This is a pretty major bill,” says political scientist Moore. “It’s been a long time since citizens really pushed back on the tourism industry. Honolulu now has one of the most aggressive regulatory bills on short-term rentals in the country and that was mostly a result of citizen activism.”

“We would really like to put a pile of tax money there at the bottom of the Hawai‘i rainbow if we can. Most states see this as a huge thing. We are really puzzled.”

— Chris Lehane, Airbnb head of global policy and affairs

And there seemed to be quick results. Shortly after Bill 89 passed, listings for STRs dropped from about 5,000 to 3,000, according to Sokugawa at the DPP, after 260 notifications of violation went out in August 2019. A Sept. 3 post on the Keep It Kailua Facebook page sounded hopeful: “We’ve had two families move into our neighborhood since the bill, homes were previously TVUs. It’s a great feeling to see new kids walking to school every morning.” In November, a study found STRs in Kailua had dropped by 218 units. Chee hoo! But, out of 854 STRs the year before, that left almost 75% still flouting the law; worse, that was 87 more than in September. Auwē!

“We still get complaints, though the number has dwindled,” says Sokugawa. “We certainly have a lot more notices of violation than before,” which she attributes to a new online complaint form (which you can find at bit.ly/STR-violation-form). “I’m really happy that the council had the courage to pass the bill.”

On the Neighbor Islands, STR supply shot up 27% on Maui, 24% on Kaua‘i and 9% on the Big Island. “We lost Maui,” says Geminiani, whose Appleseed study found 52% of Maui homes were sold to nonresidents and 60% of condos to nonresidents or second-home owners. Legislators from the Neighbor Islands had consistently supported the bill to take tax money from Airbnb, most of which would be generated by STRs run amok on O‘ahu—not very neighborly of them. Now their STRs were coming home to roost.

In March, Maui announced public hearings on a strengthened short-term rental ban. The existing law from 2012, said Michele McLean, Maui County Planning Department director, left “a lot of illegals out there, so it hasn’t succeeded in what its original objective was.” On May 23, an amended bill regulating and limiting STRs was passed.

How close did O‘ahu come to becoming Maui? By August 2019, our vacation rental supply was increasing 20% annually, according to a frequent consultant used by the HTA, Eric Kloninger of Kloninger & Sims Consulting. It might seem that no one could argue that that was sustainable, but as the vote was coming to a head the HTA unlinked its 2014 study of vacation rentals, one that DeLuca, the AmeriCorps policy analyst, had singled out as crucial to the Appleseed Center report. It disappeared. “A lot of those sources”—HTA and state—“are now gone,” says Gavin Thornton, who succeeded Geminiani at Appleseed. “We didn’t have in the project plan that we’d need to keep forever waging these battles.”

SEE ALSO: Small Town to Bustling Attraction: Tourists and Traffic Trouble the Residents of Kailua

You’d think the COVID-19 lockdowns and quarantines would have mooted the STR question, since all vacation rentals were shut down by proclamation and the city required Airbnb and other platforms to display a banner making the point. But a porous vetting of airline arrivals and STR hosts willing to flout the law turned vacation rentals into petri dishes for cultivating and spreading the virus. On April 19, the Honolulu Star-Advertiser reported “that many of the 2,970 visitors who arrived in Hawai‘i over the past 23 days stayed in transient vacation rentals.”

Against a backdrop of widely publicized photos of presumed vacation renters partying, posting and slapping sleeping monk seals, Expedia and Airbnb struck deals with Kaua‘i to limit their listings to licensed STRs and reached out to other counties. “The concern is who’s going to audit Airbnb,” says Moore at UH. “That would have to come from the state and counties to make sure they’re not just doing a cat-and-mouse game with their property listings where they take somebody down and they pop back up again, without serious consequences.”

In March, Sokugawa at the DDP had sounded positive: “We never said this will cure illegal renting. But it’s making a significant dent.” But by July Sokugawa was giving testimony on a new Senate bill intended to add more regulatory authority to the counties; one suggestion was, she said, to create a new department “that wouldn’t treat the violations as a zoning issue, because zoning can be a very technical and different paradigm. An enforcement code would do it a lot better than a zoning code does. And a new department could be self-sustaining,” from those draconian fines.

As pressure mounted to throw open the gates to tourists, newspaper op-eds and letters claimed “short-term rentals could save Hawai‘i.” In July, Mufi Hannemann, a mayoral candidate and president and CEO of Hawai‘i Lodging & Tourism Association, even warned of social unrest if reopening was postponed. “I don’t agree we’ll see social unrest,” says Moore. “Property crimes may go up,” out of economic desperation. “And it’s sad, but there is the exit option. People already were taking it—moving away. Hawai‘i could end up looking like Puerto Rico, where the only people left are the older people and the kids. The younger and middle-aged, the most likely to contribute to the economy, will have all decamped to the West Coast and Vegas. Not that the economy will necessarily be any better there.”

Meanwhile, tourism travel predictions for 2020 and 2021 are hardly for the faint of heart: fewer visits by people 50 and older, the prosperous demographic, and many more visitors from the cooped-up financially strapped 18–35 demographic—many of whom believe they’re immortal and love to pack crowded spaces. In addition to being Airbnb’s target audience, the 18–35s also spend the least on vacation. For Hawai‘i, this would seem to predict a terrible trifecta: more infections, more housing stock taken off the market and less revenue from tourism.

It may be that the most cynical idea floated—to give those who expose illegal STRs a bounty—may be the only plan that has a chance of shocking our lawbreaking visitors and their hosts into compliance. In a recession this at least would give neighborhood defenders a taste of the rewards STR hosts reap every single day.